I began analyzing the financial markets in 1982 when I became the research director for a financial advisory firm and provided regular market analysis on stocks, commodities, currencies and mutual funds. I am a technical analyst. Much of my focus was on how obscure technical indicators or methods, could be applied to the financial markets and used as an effective trading tool. Many of the indicators I have used for years, such as Gerry Appell's MACD and Welles Wilder's RSI, have subsequently gained wide popularity.

This page is devoted to sharing my insights and techniques in order to help you become a smarter trader/investor. Over the past twenty years I have traveled around the world several times, visiting all of the major financial centers as he taught professional traders and money managers my approach to the financial markets.

My method of stock selection starts with a proprietary scanning method to select a group of individual stocks for more extensive analysis. This includes an in-depth study of the volume patterns that I use to determine the strength of a stock's trend. Those with the strongest trend, either up or down, are then further analyzed to determine entry, exit and risk levels. I use Fibonacci retracement, projection and extension analysis to determine both profit objectives as well as stops.

4/27/2012 @ 12:42PM2,056 views

Homebuilders Targeting New Highs

Homebuilding stocks are setting up for a run to significant new highs in the months ahead, and now is the time to manage existing positions and look to initiate new buying.

The surprising 4.1% surge in pending home sales on Thursday caused a volume surge in the homebuilding stocks, and most closed sharply higher. It was the best pending home sales number since April 2010 and the stock market paid much more attention to this report then the somewhat disappointing data on unemployment claims.

Earlier in the week, the S&P/Case-Shiller housing price index showed a slight improvement, while the new home sales were lower than expected. In late March (see “Don’t Buy the Homebuilders Now”), the daily technical studies suggested that these stocks would correct, but since the weekly analysis was bullish, it should present a buying opportunity.

As reported by the Wall Street Journal, in some parts of the country, buyers are competing for the same house through bidding wars. The paper reported that a Seattle buyer offered $23,000 above the $357,000 asking price, waived inspections, and still did not get the house.

This changing sentiment may have boosted the volume on Thursday, which indicates that the correction in the homebuilding stocks and the SPDR S&P Homebuilders ETF (XHB) is over. Even though it is not yet clear that the overall stock market correction is over, the homebuilding stocks are likely to make significant new highs in the coming months.

Now is the time to mange existing long positions in the homebuilders, and for aggressive investors, there is one low-priced homebuilding stock that looks attractive for new positions.

Click to Enlarge

Chart Analysis: The SPDR S&P Homebuilders ETF (XHB) peaked in March at $21.99 and then dropped just below the $20 level (line a) three weeks ago. Since the October 2011 lows, XHB is up 75% versus just over 30% for the Spyder Trust (SPY).

A strong weekly close above the prior two-week high at $21.18 will suggest a move to resistance in the $24.41-$24.90 area, which corresponds to the 2008 highs

Relative performance, or RS analysis, broke through major resistance, line b, in early 2012. The uptrend, line c, indicates XHB is still outperforming the S&P 500

The pullback in the OBV has held above its uptrend, line e, and it may close back above its weighted moving average (WMA) this week

Minor support now in the $20.50-$20.80 area.

PulteGroup (PHM) surged over 10% on Thursday amid volume of 22 million shares after it beat estimates for both earnings and revenues. PHM peaked at $9.69 on March 16 before correcting to a low of $7.65, but it did hold above the 38.2% Fibonacci retracement support level at $7.25. PHM looks ready to close at a new weekly high.

From the 2010 high of $13.91, the major 61.8% Fibonacci retracement resistance is at $10.50 with additional chart resistance starting at $10.70

Weekly relative performance is very close to overcoming the resistance, line i, which goes back to late 2010

The break of the long-term downtrend in the RS, line h, helped identify the lows last fall

Weekly OBV has turned higher from its rising weighted moving average. The OBV completed a major bottom in December when it overcame resistance at line j

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